<p></p><p><br/>Market risk, inflation, and the gold price </p><p>By Manqoba Madinane </p><p></p><p>We believe the US government's actions to curb financial market systemic risks are necessary - but sadly insufficient to counteract the destabilizing effect of the credit market meltdown. <br/>We provide quantitative evidence of gold's role as a safe-haven in periods of financial market distress. We believe that, should systemic risk keep rising as rapidly, the gold price will stop slipping.<br/>Causality tests show that the causal relationship between the gold price and the trade-weighted US dollar undeniably runs from the greenback into gold price movements. After controlling for movements in the US dollar, statistical tests also show that market risk aversion Granger-causes gold prices. However, we infer no casual relationship between inflation (or inflation expectations) and the gold price after controlling for market risk and movements in the US dollar.<br/>Statistically, the economic significance of our results is that gold is not an inflation-hedge asset. This supports the co-existence of falling global inflation expectations with rising gold prices.</p>